Tough Times To Start A Company

After trying my own venture a few years ago, I have greater empathy for this challenge. I have watched a few friends and neighbors doing this. I have the ultimate respect for them.

Even so, most business experts conform to a theory of “thirds”: Of all the new business startups, 1/3 eventually turn a profit, 1/3 break even, and 1/3 never leave a negative earnings scenario. According to a study by the U.S. Small Business Association, only 2/3 of all small business startups survive the first two years and less than half make it to four years.  (source)

A few comments I have heard from friends:

  • A physician who wanted to go out on his own to open his practice (a time honored tradition) could not get a loan and even putting up his house didn’t work since the house was worth less than he owed.
  • A friend who does small business loans told me that the criteria to approve loans made it difficult for her to give small companies money.
  • I talked to a VC on my plane this morning who said they can’t raise funds in this economy and that valuations are down since there is less money chasing deals.

Then in USA Today, they had an article about venture capitalists losing their nerve.

  • US venture capital for the 3rd quarter dropped to $7.4B (down 7% from last year).
  • There were only 270 information technology deals done in the 3rd quarter which is the lowest quarterly amount since 1st quarter of 1996.
  • The Silicon Valley venture capitalist confidence index hit 2.9 (lowest in 5-year history of the index).
  • Tesla Motors, Redfin, Zillow, and AdBrite (promising start-ups) have all announced layoffs.
  • People are looking to sell their holdings in venture funds to companies like Industry Ventures that buys holdings at a discount.
  • The exceptions are biotech and clean tech which continue to grow funds.

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